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Excerpt from our One Page Annotated Wall Street Journal Summary (receive it by email every morning by signing up here):

Booming Municipalities Defy China's Effort to Cool Economy

  • Summary: China's provincial governments don't seem to be getting the message from Beijing. As the central government attempts to slow investment, its provinces are hard at work spending and building away. For instance, Zhengzhou, the capital city of Henan province -- one of China's poorest -- could see as much as $35 billion invested in its surrounding business district as its mayor seeks to triple the city's size. In Q2 China's economy expanded 11.3% or 3.3% more than Beijing's annualized target. While China is in an envious position compared to other economies around the world there are rising concerns that "the boom could cause property bubbles that weigh down banks with bad debt when they burst." Inflation continues to remain low at 1.3% but the rate of fixed-asset investment is still outpacing the earlier high growth years of neighboring Asian economies. Some economists warn of higher inflation in China and its potentially far reaching effect on the global economy. The persistent migration of labor from the countryside to cities is one reason cities have continued to invest as they must somehow accommodate the inflow while increasing revenue.
  • Comment on related stocks/ETFs: One take away from this article is that commodity prices will be kept high by the feverish fixed-asset investment in China almost regardless of Beijing's desire to slow things down. A potential investment play assuming China could be one of the greatest bubble economies ever, is in the banking sector and handling of bad loans. Note that China's first formal corporate-bankruptcy law was recently passed which should help the likes of some of the largest foreign banks operating in China: Bank of America (NYSE:BAC), Citigroup (NYSE:C), and HSBC (HBC). A WSJ article from late August commented on the Bank of East Asia (OTCPK:BKEAY), a leading non-local lender which has a comparatively very low nonperforming loan rate.
Source: A Disconnect Between Beijing and Provincial Governments